Dear readers, I am Yuan Lai from New Distribution.
Standing at the beginning of 2026, looking back at the just-passed 2025, distributors have had a tough time. Maintaining sales without decline, and even achieving slight growth, is already quite good. The vast majority of distributors have seen their profits decline.
This is the feedback I received from many distributor owners during my visits to frontline markets over the past six months.
Regional supermarkets are seeing fewer customers and declining sales; discount new channels are severely impacting business. How should we navigate this? Instant retail lightning warehouses are hot—should we follow this trend?
Many distributors have fallen into a state of confusion and anxiety.
Today, I won't talk about trends, transformation, or restructuring.
If I were to give distributors just one piece of business advice at this moment, it would definitely be this: Small and medium supermarkets and community mom-and-pop stores will be the core of distributors' business growth in the next 2-3 years.
Why am I so certain? This article will explain it clearly.
The Truth in the Data
Let me first present two sets of data for your understanding.
The first set comes from a report jointly released by Bain & Company and Kantar Worldpanel, which indicates that offline channels continue to shrink.
Hypermarkets declined by 10%, convenience stores by 5%, specialty stores by 8%, supermarkets/small supermarkets by 4%, and grocery stores grew by 6%.
Source: Worldpanel Consumer Index; Bain Analysis
In the chart above, we ignore the online part and focus on the offline segment.
Channels that are growing include discount stores, snack collection stores, and warehouse club stores. Although their growth is significant, frankly, they have little to do with 99% of distributors, as these are typical "disintermediated" chain retail.
Among the remaining offline channels, except for grocery stores which saw 6% growth, all others declined, with hypermarkets suffering the most at -10%.
After seeing this chart, my key points are: First, distributors need to gradually accept the reality of offline channel decline and contraction; this is an objective fact.
Second, since we can only operate in offline channels, we should focus on the largest capacity among all offline channels. Even if it's shrinking, the volume is still substantial.
To use an analogy, fishing in a big river is relatively easier than fishing in a pond.
In the past, many distributors were accustomed to doing business with KA (key accounts), large stores, and chains. Because individual stores had high sales volume, and dealing with one buyer could cover dozens or even hundreds of stores.
Supermarkets, small supermarkets, and grocery stores are mostly individually operated. They are scattered and numerous. Individual store output is low, and many distributor owners look down on them. Even if they wanted to serve them, the labor costs would be much higher than for KA large stores.
The second set of data comes from the "2025 China FMCG Distributor Business Condition Survey Report" released by New Distribution in August last year. We asked 366 distributors, "Which channels have shown significant growth in your operations over the past year?"
From the data, the top two channels were: small and medium supermarkets (26%) and traditional grocery/mom-and-pop stores (19.1%).
Another survey question was: "Which channels does your company plan to focus on developing in 2025-2026?" The top answers were small and medium supermarkets (39.9%) and traditional grocery/mom-and-pop stores (31.2%).
After reviewing these two sets of data, the conclusion is clear: KA and large stores, though glamorous, are withering; small and medium stores are like wild grass—small but numerous, with strong vitality.
I believe that in the next 2-3 years, if distributors do not shift their focus from KA to small and medium stores, they will not only fail to gain incremental growth but will also struggle to maintain existing volume.
Incremental Growth Forecast for Community Stores
At this point, I believe many distributors are still shaking their heads.
The data is correct, but in practice, it's hard to implement!
Why?
The cost of covering small stores is too high, inventory turnover in small stores is too slow, and after a day of running around, you might get only a few orders, not even covering labor and fuel costs.
Indeed, if you follow the old model of distributing 2-3 brands and directly covering small stores, the costs would be prohibitive. Unless you are a beverage distributor.
But if today you can offer small stores a combination of 500 SKUs, 1000 SKUs, or 2000 SKUs, and then calculate the average total cost, it would definitely work.
Let me give you the operating data of a real store to help you understand more intuitively.
A community store in a certain area, 54 square meters, excluding cigarettes, has an average monthly purchase amount of 22,900 yuan.
Top 1: Tea and beverages, accounting for 21.7%
Top 2: Domestic famous liquor, accounting for 15%
Top 3: Ambient milk drinks, accounting for 10.9%
Top 4: Snack foods, accounting for 9.2%
The top three categories are basically covered by sales representatives from core brand distributors or local offices, such as Master Kong, Nongfu Spring, Yili, Mengniu, or Tsingtao Beer.
For distributors, this is not a business opportunity or incremental growth.
Setting aside the top three categories, let's look at categories with lower attention, such as grain, oil, and condiments, including dry goods and pickled products.
From the chart above, we can see that the average monthly purchase amount for grain, oil, and condiments is 1,916 yuan, totaling 221 SKUs.
Based on this, we can roughly calculate. Assuming a typical prefecture-level city has at least 1,000 community stores of 54 square meters or more.
Average monthly 0.19万元/store * 12 months * 1,000 community stores = 22.8 million yuan.
If you are a condiment distributor, previously focusing on supermarket KA and wet markets, now adding coverage of community stores could bring an incremental 22.8 million yuan. Isn't that worth doing?
Now look at daily chemical and general merchandise. Looking only at daily chemical paper products, sales in small stores are indeed limited. But what if we add general merchandise, stationery, and sports items?
Comprehensive daily merchandise includes personal care, household items, home care, paper and hygiene products, stationery, and sports items, totaling 574 SKUs, with a monthly store purchase amount of 2,637 yuan. Based on this calculation:
Average monthly 0.26万元/store * 12 months * 1,000 community stores = 31.2 million yuan.
Among daily chemical distributors, only two types have previously touched small store channels: one is personal care distributors, such as single-brand distributors for Liby or Nice; the other is paper and hygiene distributors.
But these two types of distributors have also mainly focused on single-brand agency, helping manufacturers achieve channel sinking coverage. Few distributors have considered the comprehensive daily chemical dimension of stores.
Finally, look at comprehensive food, including biscuits and cakes, instant and health foods, convenience meals, sugar, chocolate, jelly, and snack foods. This totals 921 SKUs, with a monthly store purchase amount of 5,421 yuan.
Based on this calculation: Average monthly 0.54万元/store * 12 months * 1,000 community stores = 64.8 million yuan.
This data might seem exaggerated or even unrealistic for a food distributor. For example, the instant noodle category is dominated by Master Kong, Uni-President, and Jinmailang. If following the old brand agency model, it's unlikely that all these brands would be under one distributor. Similarly, for puffed snacks, there are Dali and Lay's.
But by listing these three categories, the core message is to tell distributors that community stores do have sales potential. However, if you try to capture small store sales simply by representing a few brands as in the past, it won't work.
You must change your business mindset, using multi-category product portfolios, combining partial brand agency with partial wholesale and collective procurement, to achieve multi-category coverage of community stores.
Distributors' Business Increment
Just now, we looked from the perspective of community store purchasing to give distributors a direct sense of the business increment in different categories.
Now let's switch perspectives and look at the underlying logic of the distributor business.
In a trading and distribution business, the core of sales volume is this formula: Sales = Number of Stores * Output per Store.
In the past, distributors focused on KA and large stores. In an average prefecture-level city, having 50 KA and large stores is already quite good. After 10 years of deep cultivation locally, they didn't consider increasing the "number of stores."
The core operational action was to increase "output per store." This involved two specific actions based on the brands they represented: first, display placement; second, promotional events.
Through placement and events, they maximized the conversion of in-store traffic, especially on weekends, into POS sales.
This is the growth logic for KA and large stores.
Returning to community stores, the same formula applies: Sales = Number of Stores * Output per Store.
The core reason distributors were unwilling to do this in the past is that the output per store is too low. Additionally, the KA approach to increase output per store cannot be applied here. Because the in-store traffic is very limited, investing in display placement and events (except for beverages) has a lower return on investment compared to KA and large stores.
This is also why many brand manufacturers find it difficult to cover small stores.
But for distributors, their role is different from that of brand manufacturers. The core business objective of a brand manufacturer is to increase the market share of its own brand.
However, distributor owners can change their mindset. The business objective can be to focus on a specific category and, through a combination of dozens of brands, increase the category sales within the store.
For KA and large stores, the core to increasing output per store is display and events; for small stores, the core is one-stop category supply and product assortment.
To achieve sales growth in small and medium supermarkets and small stores, distributors must transform from single or multi-brand agents into operators of specific categories.
In the future, distributors deeply rooted in local markets will essentially become regional B2b supply chain platforms. Whether they call themselves B2b platforms or not doesn't matter.
Essentially, they use digital tools to conduct large-scale multi-category collective procurement and distribution. Distributors don't earn from the price difference between purchase and sale; they earn as service providers helping small stores improve turnover efficiency.
Summary
Finally, I want to talk about mindset.
During my visits, I found many distributors worried: With instant retail, discount stores, and front warehouses and lightning warehouses expanding across cities, will small and medium stores disappear? Compared to these new retail formats, small and medium stores seem defenseless. Is it still meaningful to do this now?
My view is: They think too far ahead but do too little.
As a local trade operator, you need to watch and listen to trends, but when it comes to daily frontline operations, the first priority is to seize the current business. In the next 2-3 years, small and medium supermarkets remain a tangible and visible foundation.
To use an imperfect analogy: Autonomous driving is a certain trend, but will drivers lose their jobs? What will current drivers do in the future? That's thinking too far! The market is dynamic. First, seize the current business.
In 2026, let go of the obsession with KA and large stores, and let go of the fear of new retail. Bend down, dive into communities, and use the logic of category product portfolios to serve every small and medium supermarket.
Therefore, I would like to invite you to the CFC 11th China FMCG Conference from March 16-18. During the conference, two major forums will be held: the "6th China FMCG Distribution and Retail Conference" and the "Annual Masterclass: The Era Opportunity of Community Retail Store Collective Procurement." The core is to break down the logic discussed in this article into actionable plans you can take back and implement.
First, at the "6th China FMCG Distribution and Retail Conference," we will bring:
Release of an industry forward-looking report On-site release of the "Next-Generation Intermediary White Paper - China FMCG Distribution Insights 2026," providing a roadmap for "redefining intermediaries": who is improving matching efficiency, and who is becoming the growth infrastructure.
Tripartite dialogue among brands, distributors, and retailers Focusing on the "three rights structure" of pricing rights, supply rights, and user rights, pushing the manufacturer-distributor relationship from "upstream-downstream game" to a "demand loop community," forming executable collaborative strategies.
Benchmark case analysis In-depth analysis of the transformation paths of leading "intermediaries," interpreting organizational structure, product strategy, cost tactics, and growth paths, ready to apply immediately.
Direct connection to regional supermarket resources 100+ regional chain supermarkets, 1,600+ stores, covering 14 provinces and autonomous regions, for precise matching.
Second, at the "Annual Masterclass: The Era Opportunity of Community Retail Store Collective Procurement," 9 hours, 99 supporting points, topics include:
- Efficient distribution is the only way to cross cycles
- The necessity for distributors to upgrade to regional B2b
- The big merchant model of trade + B2b + stores
- Hard discount chain transformation of community retail stores
- Category management and iteration of product portfolios to drive growth
- Brand manufacturers need to efficiently cover community stores at scale
Instead of looking back in anxiety, find answers and co-create business at the scene. In March, in Chengdu, see you at the conference!